Exchange-traded funds (ETF) have been growing in popularity among investors. Even though a Bitcoin ETF is yet to be approved by regulators, its approval chances are high.
Before we get into the impact of Bitcoin ETF in the cryptocurrency market, let us take a step back and clear the way.
What is a Bitcoin ETF?
Basically, an exchange-traded fund is an investment path that monitors the performance of a particular asset giving investors a chance to invest in the underlying asset without the need of actually owning the asset.
A Bitcoin ETF is no different. Investors are able to invest in Bitcoin without actually owning Bitcoin. That is, they will not have to worry about how to store, transfer, and deal with regulatory measures surrounding Bitcoin.
In short, investors are investing in Bitcoin through an intermediary. Interestingly, a Bitcoin ETF is traded on a traditional stock exchange as opposed to a cryptocurrency exchange which is used to trade the actual Bitcoin.
Additionally, with an ETF, investors will have the rare chance of short selling its shares a feature that is non-existent when trading Bitcoin on a cryptocurrency exchange.
With cryptocurrencies being relatively new but gaining momentum in terms of popularity, investors who are accustomed to trading on traditional markets and exchanges will be a bit skeptical in trading in digital currencies.
However, an exchange-traded fund such as a Bitcoin ETF will help this investor to invest in digital currencies, Bitcoin, without the need of going back to school on how to handle investments in virtual currencies.
Why has a Bitcoin ETF not approved?
With such benefits, the question of why such an ETF is not already in existence can’t be avoided.
Here’s the truth.
Cryptocurrency affiliated firms have been trying to get regulators like the United States Securities Exchange Commission (SEC) to approve such investments vehicles. However, even though Bitcoin leads the way in terms of market capitalization, the SEC is not comfortable with its unregulated nature.
And with the cryptocurrency market still in its development stages, the regulator is not ready to approve an ETF that is solely traded in an unregulated market.
For SEC, this is a way of protecting investors. The regulator seems to be rooted in claims that Bitcoin is prone to manipulation which is hard to control in the cryptocurrency market.
The recent filing of a Bitcoin ETF was by VanEck, a New York-based investment management firm deep-rooted in traditional finance.
Although the ETF is not yet approved, VanEck together with other industry leaders like SolidX and Cboe, met with SEC to help extinguish the uncertainty manifested by the regulator.
“There now exists a significant regulated derivatives market for Bitcoin; relevant markets – Cboe, Bitcoin futures, OTC desks – are now regulated; concerns around price manipulation have been mitigated, consistent with approval of prior commodity-based ETPs; Cboe’s rules are designed to surveil for potential manipulation of Trust shares; promotes investor protection.”
All these reasons were given with the aim of courting the Securities and Exchange Commission to approve VanEck’s Bitcoin ETF.
What is the impact of a Bitcoin EFT in the cryptocurrency market?
Forbes noted that, if approved, it will be “the single-biggest growth catalyst the cryptocurrency industry has seen to date. The SEC’s willingness to give the proposal a chance should drive Bitcoin prices higher in the near future.”
Additionally, a cryptocurrency ETF will encourage large institutions which are ready to pour their money in cryptocurrency but fear losing out due to fluctuations, fraud, and manipulations, to do so through a regulated investment vehicle.
With large amounts of money spent in cryptocurrencies, the overall cryptocurrency market will, without doubt, manifest positively into the price of Bitcoin and the general cryptocurrency market in the near future.
As the prices appreciate, cryptocurrency investors will realize a return on their investments and more people will be drawn in.
As more people invest in the cryptocurrencies, the market gets more stable attracting an official recognition from regulators and major financial institutions e.g central banks.
In short, a Bitcoin ETF, if approved, will have a ripple effect which will be felt across the entire cryptocurrency market.
Although the United States Securities and Exchange Commission has in the past declined to approve such investment vehicles, the recent application has seen the Commodities Futures trading Commission anticipate a 90 percent chance of approval.
The SEC has also been monitored changing its hard stand on crypto ETFs to even inviting suggestions from investors on the advantages and disadvantages of such an ETF.
With VanEck, for example, remaining bullish that their application will be approved before mid-2019, fresh blood will start flowing in the cryptocurrency space in the foreseeable future.
Although the current application of a Bitcoin ETF is targeted at institutional investors, retail investor will substantially benefit.